MILAN, Oct 5 (Reuters) - Italy's biggest gas distributor

Italgas said on Saturday it had agreed to buy smaller

rival 2i Rete Gas in a 5.3 billion euro ($5.8 billion) deal,

including debt.

A merger would mark a major step in the consolidation of

Italy's gas distribution sector and also create a leading player

in Europe, Italgas CEO Paolo Gallo said in a statement.

The equity value of the transaction is 2.06 billion euros,

while 2i Rete Gas' net financial debt and other net liabilities

at the end of 2023 amounted to 3.246 billion euros, Italgas

said.

The gas distributor will cover the cost of the deal via a

bridge financing initially underwritten by JP Morgan and

syndicated to a group of banks including Banco BPM, BofA

Securities, Citi, JP Morgan, Morgan Stanley ( MS ) and Société

Générale.

It will then launch a 1 billion euro rights issue to

refinance the bridge loan with the goal of maintaining its

current credit rating profile.

Italian infrastructure fund F2i has a 64% stake in 2i Rete

Gas, the country's second biggest gas distributor. Dutch pension

fund APG and buyout group Ardian together hold the remaining

36.1% under the vehicle Finavias.

Closing of the transaction is expected in the first half of

2025, subject to regulatory approvals.

Gas distribution is a regulated business in Italy with the

country's energy authority responsible for setting fees on the

fuel transport and returns on investments needed to upgrade the

network.

JP Morgan acted as financial adviser for Italgas, Legance

served as legal adviser, and Foglia and Partners was responsible

for tax matters. Mediobanca, Intesa Sanpaolo, Rothschild and

UniCredit supported 2i Rete Gas' shareholders on the deal.

JP Morgan, BofA Securities and Jefferies have provided a

fairness opinion to Italgas' board regarding the deal.

($1 = 0.9111 euros)